Rainbow taken to task

Press, 17 March 1987, Page 41

Rainbow taken to task

PA Wellington Rainbow Corp, Ltd, has been taken to task by the Society of Accountants for “creative accounting” in its treatment of earnings from the sale of Rothmans and Omnicorp shares during the last half year. The society’s Accounting Research and Standards Board has issued a statement criticising the implementation by Rainbow of its previously announced plan to spread over two years a $36

million profit from the share sales.

Only $9 million has been included in Rainbow’s reported interim profit of $16.8 million.

The board’s chairman, Mr John Hagen, said that meant an understatement of the profit for the period by $27 million. “It might be argued that the reported result is therefore conservative. However, it must be recognised that an inevitable consequence is that profit in subsequent periods will be overstated

by $27 million,” Mr Hagen said.

He said the practice was not justified, flouted internationally accepted accounting principles and was “another serious example of creative accounting.” If Rainbow continued the practice in its annual financial statements, the society expected an appropriate qualification in the auditors’ report, Mr Hagen said.

His board would discuss the issue with the auditors, he said.